5 Questions to Ask Before Buying a Business
Buying a business is a huge deal. It’s a transaction you want to get right. You want to invest in the right business, at the right time. Part of the strategy is doing proper homework on the business you’re eyeing right from the start.
You can do online searches for the business, talk to industry experts and consult personal contacts. But the best way to do your research is to go straight to the source – the current business owner. Ask them a number of pertinent questions to help establish the feasibility of buying their company.
WHAT ARE THE BIGGEST CHALLENGES YOU FACE RIGHT NOW?
The business might be up for sale simply because the owner wants to switch trades or is retiring. On the other hand, the owner could be selling because the business is facing hardships they can’t overcome. If the reason for the sale is the latter, you need to know, so that you can discuss the challenges with the owner. You need to be sure that you have the knowledge, skills and finances to face struggles. If you don’t, or if you just don’t feel up to it, it might not be the business for you.
WHO RUNS THE BUSINESS WHEN YOU GO ON HOLIDAY?
This is a great question to ask to establish the quality of life you’re in for. If the owner goes on holiday often and the business keeps on running without a problem, you won’t need to babysit the company either once it’s in your possession. But if holidays are few and far between, and the business can’t operate properly without the owner’s guidance, know that you’re in for long hours and days. If this is not what you want for your life, then back out of the sale before it’s too late.
HOW MUCH DOES THE COMPANY DEPEND ON KEY CUSTOMERS?
The ideal company will derive its revenue from a number of sources, not just one or two clients. The risk is great with a limited number of clients – what happens if they decide to do their business elsewhere? Not only does your chances of running into financial trouble increase, you’ll also be in for a lot of hard work to try and recruit new customers.
WHAT SKILLS DO I NEED TO RUN THE BUSINESS EFFECTIVELY?
Buying a business is much more than simply having enough cash to afford it. You need to have the right skill set to run the business effectively. Ensure that you understand what skills and resources you need to have before making an offer on the company. For example, if you’re a shy and introverted person, then a business that requires a lot of customer interaction is probably not the best choice for you.
HOW DID YOU ARRIVE AT THE ASKING PRICE?
This is a fair and reasonable question to ask, and will help you negotiate the best price. Often sellers set the price as high as possible as a way to set themselves up for the future, whether it’s for retirement or capital for their next venture. In these cases, the asking price is not a true reflection of the value of the business, which gives you more room for negotiation. If the owner is not open to talks, back down and go look for an investment elsewhere.
Should the answers to all these questions satisfy you, you can feel confident in your decision to brand out on your own. Once you’ve signed on the dotted line, speak to Digicash about setting up debit orders for clients. Not having to worry about customers paying you on time, means more time to enjoy the things you love.